Mexico Rates Guru Who Forecast February Hike Has a Bold Call

  • Vector’s Rodolfo Navarrete sees half-point increase this week
  • Mexico facing challenges to continue financing current account

With Mexico’s peso plunging in February, Rodolfo Navarrete told clients the central bank would do something unprecedented: raise interest rates between scheduled meetings.

The chief economist from Vector Casa de Bolsa, a brokerage based near the industrial city of Monterrey, was out on a limb. Wall Street firms like Goldman Sachs Group Inc. and JPMorgan Chase & Co. said the bank would wait at least until its next meeting in March. But Navarrete was sure the peso’s plummet would force its hand. That prediction proved to be spot-on as authorities raised rates a half-percentage point on Feb. 17.

Now, Navarrete is once again bucking the consensus. He says that worries about a widening current account deficit will spur the central bank to lift borrowing costs another half point on Thursday to 4.75 percent. He’s the only economist out of 22 surveyed by Bloomberg predicting any change. An exodus of foreign bond investors and a drop in foreign direct investment, combined with a decline in oil exports, are making it harder to finance the current account shortfall, he said.

“Mexico needs to induce spending cuts both privately and publicly,” Navarrete said in an interview. “The way that you do that on the private side is by raising interest rates. We think the central bank will act, but the market isn’t focused on this.”

Navarrete’s prediction isn’t shared by swaps traders, who aren’t pricing in any increase until October. Economists in a Bloomberg survey also say the central bank will wait until the fourth quarter. Ricardo Medina, a spokesman for the central bank, declined to comment about expectations for Mexico’s monetary policy.

Mexico’s peso gained 0.4 percent Wednesday to 18.3688 per dollar as of 11:30 a.m. in New York.

While Vector can’t match Wall Street’s biggest firms in size or reputation, Navarrete, who’s worked at the brokerage for 22 years, is gaining attention for his calls.

Since late 2015, Navarrete and his team have been predicting that Mexico would grow 1.8 percent this year. At the time, a survey of economists by Citigroup Inc.’s Mexico unit was for 2.7 percent, and Vector’s forecast was by far the lowest. The median has since fallen to 2.17 percent, with firms from Bank of America Corp. to Barclays Plc cutting their estimates to 1.9 percent. Vector’s forecast has remained constant.

Of course, Navarrete hasn’t always been right. He expected the central bank to increase rates just a quarter point in June, when it raised by a half point. But his predictions on everything from inflation to industrial production have helped make him the most accurate forecaster for Mexico’s economy overall, according to Bloomberg rankings.

"A lot of institutional investors are following us more closely and wanting to hear what we have to say," he said.

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